Advertising Regulation 2010

National Advertising Review Council
Self-Regulation of the Advertising Industry

A Brief History of Advertising Regulation The first official regulation of the advertising industry happened over 100 years ago, when in 1906 the government passed the Pure Food and Drug Act. In this era, the most common deceptive practice was to mislabel products, especially medicines, tonics, food, etc. from what the actual ingredients were in the container (FDA). Oftentimes, harmful ingredients were left off the label entirely. This law made it illegal to continue with those deceptive practices. Shifts in political power and cultural attitudes lead to new directions in the legal system. The origin of federal regulation of advertising is a product of the Progressive Era, which was a time of at least moderate reform and restructuring in response to the industrialization, urbanization, and modernization of the late 19th century (Rabe). In 1914 the government established the Federal Trade Commission, initially to enforce anti-trust legislation. Soon they broadened their scope to include regulation of false advertising. The extent the FTC had to determine “misleading” advertising and their authority to punish the perpetrators was highly debated and took several years to establish (Rabe). With the passing of the Wheeler Lea Act in 1938 the Federal Trade Commission was amended to enforce the “unfair or deceptive acts or practices in commerce are hereby declared unlawful” (FTC). In the late 1960’s several advertising associations, some of which have been in place since the early 1900s, realized a need to function efficiently and without government involvement. They started planning a new non-government regulation entity. They grew tired of relying on government to regulate their industry and often felt they were treated unfairly (Rabe). This associational self-regulation would be a “manifestation of private-interest government which, like advertising, has to be a ‘mirror of society’ and of the community’s standards” (Boddewyn). It would need to offer an alternative to “over- or under-regulation” (Boddewyn).

NARC The National Advertising Regulation Council was established in 1971 when the Association of National Advertisers - “ANA,” the American Association of Advertising Agencies - “AAAA,” and the American Advertising Federation - “AAF,” created an alliance with the Council of Better Business Bureaus - “CBBB,” to create an independent self-regulatory body (NARC). The NARC’s main mission is to “foster Truth and accuracy in national advertising through voluntary self-regulation” (NARC). The three main goals they use to foster advertiser compliance are: 1) Minimize governmental involvement in the advertising business 2) Maintain fairness for settling disputes among competing advertisers 3) Foster brand loyalty by increasing public Trust in advertising’s credibility (NARC) Minimizing governmental involvement: When considering self-regulation by the FTC or other government agencies, one can see the slippery slope and possible pitfalls that might ensue. Can the FTC truly be self-regulatory? However disguised, when the government is the one to self-regulate there is always a considerable possibility of infringing on First Amendment rights (Szoka). It would appear much better for the industry and consumers alike to have an industry selected regulation council. As Jean Boddewyn observed, the functions would be best performed by having social subgroups such as business associations and trade councils safeguard the public interest and set the industry public policy, provided they are properly institutionalized and supervised (20). Therefore, “governments can then focus on broad policies and impose few controls, leaving many of the latter to self-regulatory bodies” (20). Maintain fairness for settling disputes among competing advertisers: Industry and Government alike agree that the self-regulatory process, which complements the law, is the fairest system for the advertising industry. Such systems relieve administrations and courts of burdensome, costly and/or complex tasks. Additionally, regulatory entities like the NARC are more flexible in dealing with “soft” issues such as taste, decency and sexism (Boddewyn). These regulatory councils of the NARC use a unique form of alternative dispute resolution, working closely with in-house counsel, marketing executives, research and development departments and outside consultants to decide whether claims have been substantiated. Each party has ample time to explain its position and provide supporting data (NAD). Foster brand loyalty by increasing public Trust in advertising’s credibility: The theory here is that the public will trust marketers and advertisers if they believe that the industry regulators will protect them from false advertisers and scam artists. By trusting the regulators to police the advertising industry, it creates a trusting and loyal relationship between advertisers and their consumers. Unfortunately, this theory is not always true. Regulation does bring to notice the violators, but in itself, only has so much control. Self-regulation relies “almost entirely on peer pressure, including that of the media, and on the publicity of its decisions, rather than on harsh penalties of the judiciary type” (Boddewyn). The NARC is the governing council and policy maker for four separate review divisions: The NAD - National Advertising Division, CARU – Children’s Advertising Review Unit, NARB – National Advertising Review Board, and ERSP – the Electronic Retailing Self-Regulation Program.
NAD, National Advertising Division of the Council of the BBB The NAD is the main investigative arm of the advertising industry’s voluntary self-regulation program (CBBB). It’s casework results from competitive challenges from other advertisers and also from self-monitoring traditional and new media, including the Internet (CBBB). The NAB derives all its funding from membership in the Council of Better Business Bureaus, Inc (CBBB). For more than two decades advertiser have depended on the NAD to help maintain “high standards of truth and accuracy of national advertising claims, and to resolve disputes about advertising claims” (NAD). The main reason advertisers are willing to let the NAD settle their disputes is that it’s significantly less expensive than litigation. By using the NAD process, companies that need to watch their costs can save hundreds of thousands of dollars that would typically be spent seeking reparation through the courts (NAD). The NAD also adheres to a strict schedule by providing a written decision within 60 business days (NAD). The NAD attorneys are experts in the advertising review, with expertise in claims substantiation, advertising and trade regulation, litigation and arbitration (NAD).

CARU, Children’s Advertising Review Unit of the Council of Better Business Bureaus The Children’s Advertising Review Unit was founded in 1974 to “promote responsible children’s advertising as part of a strategic alliance with the major advertising trade associations through the NARC” (CARU). CARU is the children’s arm of advertising regulation and covers all media types. CARU has a strict Guidelines for Children’s Advertising, which the industry must adhere to if they plan on advertising to children. When advertisements are found to be misleading, inaccurate, or inconsistent with the Guidelines, CARU seeks change through the voluntary cooperation of advertisers (CARU). CARU’s Guidelines are intentionally subjective, going beyond the key components of self-regulation - that of truthfulness and accuracy, to understand the uniquely impressionable and vulnerable child audience (CARU). They recognize that the special nature of the youthful audience requires particular care and a high degree of monitoring and diligence on their part. This monitoring includes over ten thousand commercials, and reviewing print, radio and online advertisements (CARU). With the advent of the digital age, the federal government passed the Children’s Online Privacy Protection Act of 1998. This act was enacted specifically to protect children from efforts of online marketers to collect personally identifying information from young consumers, under the age of 13, without parental involvement (FTC). The Federal Trade Commission is responsible for implementing its rules and requirements and enforcing COPPA adherence (FTC). With this new law, the FTC started a ‘safe harbor’ provision for industry groups and others to request Commission approval of self-regulatory guidelines to govern participants’ compliance (FTC). CARU’s self-regulatory program became the first FTC-approved Safe Harbor under COPPA. Members who adhere to CARU’s Guidelines are found to be compliant with COPPA and basically insulated from FTC enforcement action as long as they comply with program requirements (CARU).

NARB, National Advertising Review Board The NARB “is the appeal division of the advertising industry’s self-regulatory system” (NARB). When advertisers disagree with decisions made by the National Advertising Division, or by the Children’s Advertising Review Unit, then they can appeal to the NARB for further review (NARB). The Board is made up of 70 professionals from three different categories: • National Advertisers - 40 members • Advertising Agencies - 20 members • Public members – 10, made up of academics and former member of the public sector (NARB). When the Chair of NARB accepts a decision for review, a panel of five NARB members, which consists of three advertiser members, one agency member and one public member, assemble to hear the appeal (NARB). The panel’s findings and recommendations are non-binding, as with all the self-regulatory councils, though most advertisers do accept the NARB Panel’s findings. Rarely does an advertiser unwillingly accept to comply with the recommendations; for doing so would cause the NAD/NARB to refer the matter to an appropriate law-enforcement entity (NARB).

ERSP, Electronic Retailing Self-Regulation Program The ERSP is relatively new, just being established in 2004. It is the self-regulation body of the Electronic Retailers Association. It works independently from the ERA to create an unbiased self-regulatory system (NARC). The National Advertising Review Council administers the policy oversight to the program. Like it’s other regulatory partners, its goals are to foster truthfulness and accuracy in advertising and bring trust to consumers. They are the regulation arm that deals with Internet, and all electronic retailing (ERA). The ERSP specifically deals with the Direct Response Advertising Industry, and continues to play an important role in preventing deceptive claims from remaining on the air (ERA). ERSP cases originate from inquiries brought by competitors and consumers, as well as through their own monitoring system (NARC). The ERSP has monitored over 4500 Direct Response Advertisements, over 4000 Email Spam, 250 Home Shopping hours and approximately 170 consumer complaints have been pursued (ERA). A quick search on the Internet will show you that electronic advertising has one of the highest rates of deceptive practices in the industry. Large portions of the deceptive online advertising cases relate to weight loss, exercise machines/equipment and herbal supplements. With the incredible amount of deceptive advertising, if not outright fraud, out there in the World Wide Web, it’s no wonder that the ERSP is also one of the most criticized advertising regulation programs. Many people who have been a victim of deceptive advertising on the Internet, or a parent who is outraged by Internet marketers targeting their children feel that the ERSP needs to be more effective in it’s regulation policies.

Examples of Regulation Cases
NAD Refers ‘Stemulite’ to FTC, FDA For Further Review This first case the National Advertising Board investigated claims from Metabolic Research, Inc., for the Stemulite dietary supplement. The NAD contacted the makers of Stemulite regarding claims that they would like to see supporting evidence (NAD News): • “People who take Stemulite Experience: o Deep REM Sleep o Increased muscle Gain and Endurance o Increased Weight Loss and Fat Loss o Increased Wellness and Energy • “Achieve Peak Athletic Performance Naturally with Stemulite all-natural Fitness Formula” (NAD News)

The advertiser failed to respond to this request, even with and extension on time given by the NAD (NAD News). NAD noted that it is a “well-settled principle of advertising law that an advertiser must possess adequate substantiation before it publishes advertising claims” (NAD News). By not responding to this request, Metabolic Research, Inc. is opening itself to be reported to the Federal Trade Commission and the Food and Drug Administration, where there is possible law enforcement action.
NAD Recommends L’Oreal Modify Certain Claims On Their Facial Cream This case is a very typical one for the NAD. The NAD determined that L’Oreal USA had a reasonable basis for some claims, but recommend they modify others (NAD News). The claims they had issue with were for their High Resolution Refill-3X Facial Cream: • “Refill Wrinkles in Just One Hour!” • “New powerful anti-wrinkle results: Immediately, more than 81% of women see significantly softer, smoother skin.” • “Skin is saturated with moisture 94% and looks youthfully plumped” (NAD News) After review of the evidence, the NAD determined that the claim “Refill Wrinkles in Just One Hour!” was too much of an exaggeration and was not substantiated enough. They also suggested that they alter the wording to reflect that it was 94% of participants that reported their skin felt more moisturized (NAD News). The other claims had enough support to remain as they were. L’Oreal complied with the recommendations and said they will take them into account in future advertising (NAD News).

NAD Reviews AD for US Bank Flexperks Visa, Following Challenge by American Express This example is one of the many common claims that are turned in by a competitor. A company’s main competitor will be it’s highest regulator of what is fair and truthful (Boddewyn 24). The NAD reviewed claims for the FlexPerks Visa Card and determined it’s comparative advertisment had many unsubstantiated claims (NAD News). At issue were: • “More Value vs. Less” • “Fast vs. Slow” • “Free vs. Fee” • “Always Double Rewards” • “Half as Many Places” (NAD News)

The fundamental element of this ad was a comparison of frequent flyer perks that US Bank offered compared to the American Express SkyMiles. The NAD found that much of the wording in these ads could sound misleading, making comparisons that portray the programs as very similar, but in reality, they aren’t comparable. The NAD recommended that US Bank discontinue several of the claims that had the misleading wording. They determined that the “Free vs. Fee” is not misleading and does in actuality show a significant difference between the SkyMiles program and the US Bank FlexPerks program (NAD News). US Bank not only welcomed and participated in the review, they thanked the NAD for it’s detailed attention to this matter, and would tailor future advertisements to avoid these same issues (NAD News). This would seem to be a classic case of a large, well known company wanting to keep its good publicity and not cause actions that would lose them their good image and customers.
CARU Recommends MGA Entertainment Modify Advertising for ‘Rescue Pets’ Through its routine monitoring of advertisements for children, the Children’s Advertising Review Unit found a 30-second commercial that wasn’t complying with the standards of appropriate safety when children are participating in activities that could put them at risk (CARU News). The commercial is for ‘Rescue Pets,’ plastic toys that can swim and walk, and was showing children playing with them in a pool. The commercial featured three brief shots of an adult woman, in the background reading a book (CARU News). There were no visual or audio disclosures that stated adult supervision was required. All the packaging for these toys clearly states: “Caution! Do Not Allow Children to Play in Water Without Adult Supervision” (CARU News). After the review, CARU determined that this commercial didn’t accurately deptict adult supervision. They recommended future advertisements should show an adult in the pool with the children, or more prominent adult supervision (CARU News). They also recommended a voiceover with the caution statement. MGA Entertainment was disappointed with CARU’s decision, but would comply with their recommendations for future advertisements (CARU News).
ERSP Refers Advertising for ‘Sauna Twin Multi-Lipo Reductor’ to FTC The Electronic Retailing Self-Regulation Program had referred Siglas, Inc., the marketer of the Sauna Twin Multi-Lipo Reductor, to the Federal Trade Commission (ERSP News). Through ongoing monitoring they came to the attention of ERSP, who found issues with many of their claims: • “2 sizes in 2 weeks without strenuous exercises or diets” • “Specially designed to eliminate excess weight in the waist, hips, arms and thighs” • “Does not require strict diets and exhausting exercises” • “Helps eliminate cellulite” • “Abdomen, waist, thighs, backs, hip…the precise heat. Results are guaranteed!” (ERSP News)

ERSP contacted advertiser several times to request substantiation for claims made in its advertising. The marketer failed to respond or participate in any inquiry and will now be referred to the FTC for further review (ERSP News).

Critics of Self-Regulation The previous section gave examples of what type of cases the regulation councils take on and how they are dealt. Many find those procedures severely lacking (Kelley 7). Some advocacy groups feel that advertising regulation towards children is especially lax; with the largest complaints being aimed at food industries that market fattening food to children (Kelley 2). With the outrage over childhood obesity at it’s largest rate ever, advocacy groups are complaining to the food and advertising industries (Kelley 2). The industries defend their practices by showing their involvement and good standing with the self-regulation councils (Kelley 8). CARU, especially, garners much of the criticism for only bringing a fraction of cases per year compared to the hundreds of non-compliant advertisements broadcasted each week (Kelly-Campbell). One criticism of CARU is its lack of awareness to consumers and stakeholders. CARU doesn’t seem to promote itself, nor use public-service announcements or similar outlets to encourage parents, educators and consumers to file complaints against potential non-complying marketing material (Kelley 7). The majority of it’s cases, more than 95%, come from it’s own self-monitoring system and not from consumer-initiated investigations (Kelley 7). It is not just children’s advertising that draws criticism, all the self-regulation councils are found lacking in some aspects or another (Boddewyn 23). The main issues criticized are: The few number of cases taken each year, compared to the number of advertising failures; relatively little publicity of the self-regulation standards and decisions; many decisions come too late, after the advertisement has run it’s course; and that the penalties given are too mild (Boddewyn 23). With new media, we have privacy issues on the Internet garnering the most criticism. The debates over too much or too little regulation continue to fester. Most can understand the need for stricter guidelines regarding children’s privacy online, but many are still critical about the lack of privacy on the Internet to all. In trying to define the “harm” that could occur with Internet targeted advertising, the FTC isn’t as clear (Szoka and Thierer 3). Consumers vary widely in their attitudes towards the imprecise concepts of privacy, how could the FTC possibly divine an exact expectation (Szoka and Thierer 3). Self-regulation, to be effective, must be part of a layered approach “that includes user education and empowerment through the development of tools and methods by which users can take privacy into their own hands” (Skoza and Thierer 6). In reality, the self-regulation bodies cannot handle all, or most, infractions, nor can they adequately discipline all, or most violators (Boddewyn 23). Instead we must rely on lesson-giving, precedent-setting and deterrent measures of the few decisions they do make (Boddewyn 23). Jean Boddewyn, an expert on this topic, realizes that “self-regulation is neither a panacea nor a complete substitute for other forms of societal control. Its scope is limited, its reach is incomplete, and its methods are only partially effective” (23). The monitoring of advertisements by the NARC divisions needs to be limited, to obtain a broader or more focused sample of cases by systematically checking some media, industries and practices, especially new or problematic ones (Boddewyn 23). The role of monitoring would seem to be one that shouldn’t simply be of catching more violators by law enforcement, but of one of having the role to spread and improve advertising standards (Boddewyn 23).

Conclusions The previous criticisms are valid only if one conceives the NARC divisions as a consumer policing mechanism (Boddewyn 23). However, they become void if one perceives that the main purpose of advertising self-regulation is “to have practitioners improve and internalize higher advertising standards,” something that can be done even on the basis of a few significant cases (Boddewyn 23). Advertising self-regulation is not primarily about the systematic collection and handling of complaints, but is an entity that generally promotes higher standards. Self-regulation tends to be more pro-active, than re-active; in that it seems to be more concerned with future behavior than with correcting past errors (Boddewyn 24). We can surmise that the NARC and all it’s divisions feel their true purpose is more “moral and ethical” than “disciplinary” (Boddewyn 24). We can conclude that the self-regulatory process is far from perfect. Were they to cope with every problem or issue elaborate and ever-growing standards, developing extensive preclearance and monitoring procedures, to solicit more complaints, to publicize the wrongdoings of too many firms then surely a breaking point would likely develop (Boddewyn 25). Flawed, as it may seem, the regulatory system does work. As former U.S. Federal Trade Commission Chairman, Daniel Oliver, once observed, “The marketplace doesn’t have to work perfectly to work better than government. It is our job, before we regulate commercial advertising, to weigh the promise of the marketplace against the promise of regulation” (Oliver).

Works Cited
Boddewyn, Jean J. “Advertising Self-Regulation: True Purpose and Limits.” Journal of Advertising 18.2 (1989): 19-27. Print.
CARU. “About the Children’s Advertising Review Unit.” Caru.org. Council of the Better Business Bureau, Inc. 2008. Web. 30 Nov. 2009.
CARU News. “CARU Recommends MGAE Modify Advertising For ‘Rescue Pets’ To Better Depict Adult Supervision; Company Agrees To Do So.” Caru.org. Council of the Better Business Bureau, Inc. 2008. Web. 1 Dec. 2009.
CBBB. “Council of Better Business Bureaus.” About the CBBB. FTC.gov, n.d. 11 Dec. 2009. < www.ftc.gov/bcp/workshops/disclosures/cases/about.pdf>
ERA, Electronic Retailing Association. “Self Regulation: About ERSP.” Retailing.org, Oct. 2009. Web. 10 Dec. 2009.
ERSP News. “ERSP Refers Advertising for ‘Sauna Twin Multi-Lipo Reductor’ to FTC.” Narcpartners.org, 27 Oct. 2009. Web. 2 Dec. 2009.
Federal Trade Commission. “Frequently Asked Questions about the Children’s Online Privacy Protection Rule.” Ftc.gov, 7 Oct. 2008. Web. 10 Dec. 2009.
Food and Drug Administration. “Food Standards and the 1906 Act.” FDA.gov, 20 May 2009.Web. 29 Nov. 2009.
Kelley, Ben. “Industry Controls Over Food Marketing to Children: Are They Effective?” The Public Health Advocacy Institute, 2005. Web. 3 December 2009.
NAD, National Advertising Division. “About NAD.” Nadreview.org, n.d. Web. 29 Nov. 2009. < http://www.nadreview.org/AboutNAD.aspx>
NAD News. “NAD Recommends L’Oreal Modify Certain Claims For High Resolution Refill-3X Facial Cream.” Nadreview.org, 17 Sept. 2009. Web. 2 Dec. 2009.
NAD News. “NAD Reviews Advertising For USB Flexperks Visa, Following Challenge By American Express.” Nadreview.org, 31 Aug. Web. 2009. 2 Dec. 2009.
NAD News. “NAD Refers Advertising For ‘Stemulite’ To FTC, FDA For Further Review.” Nadreview.org, 26 Aug. 2009. Web. 2 Dec. 2009.
NARB, National Advertising Review Board. “About the National Advertising Review Board (NARB).” Narbreview.org, 2009. Web. 1 December 2009.
NARC, National Advertising Review Council. Narcpartners.org. Council of The Better Business Bureaus, Inc. 2008. Web. 29 Nov. 2009.
Oliver, Daniel. “Who Should Regulate Advertising, and Why?” International Journal of Advertising 7.1 (1988): 1-9. Print.
Rabe,
Szoka, Berin, Adam Thierer. “Targeted Online Advertising: What’s the Harm & Where Are We Heading?” Progress on Point 16.2. June 2009. Web. 9 Dec. 2009.

Cited: Boddewyn, Jean J. “Advertising Self-Regulation: True Purpose and Limits.” Journal of Advertising 18.2 (1989): 19-27. Print. CARU. “About the Children’s Advertising Review Unit.” Caru.org. Council of the Better Business Bureau, Inc. 2008. Web. 30 Nov. 2009. CARU News CBBB. “Council of Better Business Bureaus.” About the CBBB. FTC.gov, n.d. 11 Dec. 2009. ERSP News. “ERSP Refers Advertising for ‘Sauna Twin Multi-Lipo Reductor’ to FTC.” Narcpartners.org, 27 Oct. 2009. Web. 2 Dec. 2009. Federal Trade Commission Food and Drug Administration. “Food Standards and the 1906 Act.” FDA.gov, 20 May 2009.Web. 29 Nov. 2009. Kelley, Ben NAD, National Advertising Division. “About NAD.” Nadreview.org, n.d. Web. 29 Nov. 2009. NAD News. “NAD Reviews Advertising For USB Flexperks Visa, Following Challenge By American Express.” Nadreview.org, 31 Aug. Web. 2009. 2 Dec. 2009. NAD News NARB, National Advertising Review Board. “About the National Advertising Review Board (NARB).” Narbreview.org, 2009. Web. 1 December 2009. NARC, National Advertising Review Council Oliver, Daniel. “Who Should Regulate Advertising, and Why?” International Journal of Advertising 7.1 (1988): 1-9. Print.